Sun's total eclipse of SolNet

SolNet's “Day in the Sun” used to be a highlight of the IT journalist’s social calendar. Of course, it wasn’t merely a social occasion: after the helicopter ride to a remote location, fine dining and spot of sport (if activities like quad bike riding and clay pigeon shooting qualify), we’d get a state of the nation address from SolNet founder Murray McNae and his lieutenants. It’s safe to say the work component of the assignment wasn’t considered too onerous, because no one ever passed up the invitation.

This year, though, there wasn’t one. Instead, for months there have been rumours swirling around of difficulties between the company and its chief supplier, Sun. Last week, the rumours were borne out when Sun abruptly ended SolNet’s supply agreement.

What went wrong? Money would seem to be the root of the problem. Sun says it’s a matter of money owed; SolNet says it’s a case of not being able to agree on how much it should be paid under a supply arrangement that came into being on July 1. A former SolNet manager and shareholder, John Hanna, who now works for Computerland, says the real problem was that the companies’ once cosy relationship went rotten.

A cosy relationship it certainly was, and you could see it all over their faces as they recounted the year’s sales exploits at the annual day out. As exclusive agent, SolNet made commission on every sale of Sun’s gear. And Sun has a hefty customer list, including Air New Zealand, Telecom, TelstraClear and numerous government departments. It looked so cosy that we kept having to a ask, “How long can it last?”, to which the stock response was, “There is no sign of it coming to an end”.

Until this year, that is. As part of a move to put its resellers around the world on the same footing, Sun made SolNet a reseller rather than sales agent. Sun’s Australasian boss, Jim Hassell, told us last week it was intended SolNet would continue to be the company’s main reseller. But SolNet chairman Murray McNae, who handed the managing director reins to Mark Botherway a couple of years ago, says the parties had failed to thrash out new terms. Then last week, without warning, by his account, there was no longer an agreement to negotiate.

It’s a precipitate end to a 10-year relationship, and must have serious implications for SolNet staff and customers. According to McNae, up to 60% of revenue came from Sun product sales, although – and doubtless this is a point he has been making to Sun -- he says there wasn’t much profit in it. The company has been building up a software development and services business which employs about 80 of its 120 or so staff. An unknown number of the rest face an uncertain future.

We’re probably witnessing a delayed effect of the dot-com crash. Sun has been a major loser, having supplied much of the infrastructure of the internet boom, only to see sales suddenly drop. One way to offset a drop in sales is to squeeze margins -- McNae’s complaint. SolNet was also a direct victim of local tech boom excess, being left some millions out of pocket when telco billing software company Telemedia went out of business. Added to that, considerable debt is likely to have been taken on when McNae sold 51% of the company to Botherway, Hanna and finance head Peter Weaver in early 2001. With the crash effects yet to be felt, and the relationship with Sun still solid, the company would have been worth much more then than it is today.

Perhaps the consequences for customers will be less severe than for SolNet. There will be immediate disruption for hardware customers. But Sun plans to hire a handful of sales and pre-sales technical staff. And Hassell reminded us last week that the company has several other local partners, including Eagle, Datacom and Computerland, not to mention EDS and Fujitsu. Computerland, with Hanna’s help, is already stepping up its Sun activities; a re-invigorated channel should be good for buyers.

As for SolNet, the hope is that it is as resilient as McNae and Botherway say. They’re pinning the company’s future on software development and services, and say it has financial reserves. They’re being coy, however, about how much is owed to Sun and others, a figure put by some at more than $10 million. Without knowing the intimate details, can only hope that the loss of Sun doesn’t leave SolNet in permanent gloom.

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